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Compare investment trusts for retirement income

Today’s retirees have a lot of freedom in how they use their pension funds. For relatively savvy and wealthy Monevator readers, turning some of a pension pot into an income-generating machine via investment trusts may be attractive.

You could use low-cost passive funds such as ETFs to generate a retirement income instead. You might even choose to gradually sell down your capital – and that’s fine for some, too.

However others may prefer to pay up for actively-managed trusts. Our faculties decline as we age, and owning several trusts dedicated to preserving their income payouts may be a life-saving option in the worst case, and a reassuring one regardless.

The table below lists trusts that Monevator writer The Greybeard believes are worthy of consideration by retirees. (Note: It’s not an endorsement, and it is not personal financial advice. Please do your own research and consider alternatives such as annuities.)

{ 28 comments… add one }
  • 1 Topman May 18, 2015, 2:30 pm

    I can’t get the s/s to scroll any further than Finsbury Growth & Income.

  • 2 The Investor May 18, 2015, 3:07 pm

    @Topman — Finsbury Growth & Income is the last entry on the list. I can’t figure out how to turn off scrolling in this embed — if anybody knows how to do it, please do report here in the comments! 🙂

  • 3 Paul Simister May 19, 2015, 7:57 am

    This is very useful.

    Investment trusts is something that I’ve always felt I should invest in but, because of the old regime of commissions, I felt it was hard to do for retail investors who weren’t extremely interested in the stock market.

  • 4 Frank May 19, 2015, 11:46 am

    Re Investment Trusts.

    It is no longer true that ITs have lower TER than UTs.
    ITs usually have performance fees which are, not only terribly high, but also written in such a way as to be completely unintelligible. Furthermore, while their prices change from premium to discount according to the will of the Gods on mount Olympus, they are always at a premium when you wish to buy and at discount when you wish to sell. They are too complicated for me and evidently so for the overwhelming majority of investors.
    Regards

  • 5 Debbie May 19, 2015, 6:38 pm

    Getting rid of those pesky scrollbars: select the range you want, not the whole worksheet. Works for me.

  • 6 Debbie May 19, 2015, 6:47 pm

    Sorry, I think I just sent you the wrong link:
    https://jsfiddle.net/4kyn6z6k/

  • 7 The Investor May 19, 2015, 7:03 pm

    @Debbie — Thanks, I thought it was something like that but we’ve had some technical difficulties to date. Will take heart and try again!

  • 8 The Investor May 20, 2015, 8:48 am

    Update: Fixed! Thanks again Debbie.

  • 9 Maree February 16, 2016, 11:57 am

    This is very helpful. It would be great to also have a column for what sector / category the trust covers.

  • 10 Mark May 12, 2016, 9:53 am

    Apropos The Greybeard’s comment that some ITs offer insufficient yield to interest investors in drawdown, this is true, but it isn’t the entire story. Some of the lowest-yielding trusts, based on current share prices, are renowned for increasing their distributions much faster than inflation. Someone who buys into such a trust now, in the accumulation phase of their investing life, might find the distributions highly attractive when measured as yield on original purchase cost, perhaps 15 or 20 years down the line.

  • 11 moueecatcher007 May 12, 2016, 5:35 pm

    But have factored in your platform charges? If you’re paying an annual % on UTs, ITs are likely to be significantly cheaper in the long run if you buy in reasonable chunks and then hold. And you could always buy on a discount and sell on a premium …

  • 12 Neil May 17, 2016, 4:08 pm

    Dividend reserves are also very useful with IT’s and their habit of putting aside money for continued payment of dividends during weak markets is excellent.

  • 13 Mark Meldon May 19, 2016, 4:14 pm

    Well, at last some updated news about ITS for SIPPs! The majority of my SIPP clients (I am an IFA) hold a mix of many of the trusts in the table along with some index funds like the VT Smart Dividend UK Fund. With a good value SIPP and decent trading platform the running costs of such arrangements, certainly for those luck enough to have larger pots are very attractive. I have a few clients where the yield from the portfolio easily covers their current income drawdown requirements.

    ITs have never paid commissions to IFAs, by-the-way.

  • 14 Peter July 6, 2017, 8:29 am

    Might somebody be willing to answer my novice question? I’ve searched online to no avail…

    Is the quoted yield for such trusts typically NET of fees or, for example, where the yield is quoted as 4.5% and the charge as 0.6% should I take that as an effective yield of 3.9%?

  • 15 The Investor July 6, 2017, 9:09 am

    @Peter — Such a yield should be quoted by data providers net of any fees. In the case you give, the yield would be 4.5%.

    Remember though that the yield you’ll buy into fluctuates from day to day as the trust’s share price changes. A table of data is just a snapshot in time. You need to know what the forecast dividend payout will be in pence for the full year to come (most years with the sort of established trusts listed here it will be the same as last year, plus a small increase for inflation) and the share price, and then you can work out the forecast yield for yourself.

    For instance, if you believe the trust will pay 15p over the next year and its shares currently cost 300p, then the yield you’re buying into is 15/300 = 5%.

    One thing that might not help if you’re a novice but is a big advantage in my view of Investment trusts is they are basically listed companies that make investments (as opposed to mutual funds etc, which are a different sort of vehicle, as you know). So you can dig into their annual reports to find out all sorts of interesting information about them.

    Here’s the 2016 report for City of London trust, for example: http://bit.ly/2tOIzck

    There’s lots of clear and easy to understand information at the front for shareholders, but you can also dig into the detail if you’re so inclined.

    Make sure you also know all about premiums and discounts: http://monevator.com/investment-trust-discounts-and-premiums/

  • 16 The Investor July 6, 2017, 9:15 am

    Oops, edited my reply as I said “forecast yield” instead of “forecast dividend payout”, which is only going to confuse matters. Please read latest edited comment above, should be clear now I hope! 🙂

  • 17 Peter July 6, 2017, 9:39 am

    @Investor –

    Wow, fantastic. Thank you for your explanation which, like the rest of this site, clarifies and educates so cleanly.

    For the benefit of others, here is an online tool which takes the work out of that particular calculation you describe (based on a trailing 12-month dividend payout and the current spot price) also and allows you to see historic tables of dividend payouts.
    http://www.dividenddata.co.uk/dividend-yield.py?epic=CTY

    I think the principles are very clear but, before taking the plunge, I wanted to be confident that the investment vehicle really does do what it says on the tin (so in your example, the 15p gross figure would be all mine based on a 300p investment).

  • 18 Richard September 21, 2017, 7:33 am

    This is really useful. I have provided a link to this many times to others.
    Any chance we could get an update on this?
    Pretty please
    R

  • 19 Dave August 15, 2019, 3:37 pm

    Think maybe it should have dividend cover added to it.

  • 20 The Investor August 15, 2019, 3:46 pm

    @Dave — We could add all sorts but it’s really a jumping off point of research and of course the specific data will date quite quickly*. I see it as most useful as a selection that have got past Greybeard’s filter for retirement income purposes, that you can then dig deeper into.

    Personally I wouldn’t buy an investment trust without reading an annual report or two, the latest report, and a few factsheets minimum. 🙂

    *Although I’d like to see it updated annually, ideally. If you’re a fan of this table please do leave your comments here so we know you’re out there and Greybeard feels inspired! 😉

  • 21 MAX August 15, 2019, 4:03 pm

    I too have been a long time fan of Investment Trusts for my income portfolio. The AIC and Trustnet sites are great sources of information. The AIC provides some important information that isn´t available on the Trustnet site such as 5 year dividend growth and revenue reserves. Trustnet has useful portfolio simulation tools both to build a portfolio a with combinations of ITs, ETFs and OEICs to analyse 1, 3 and 5 year performance and and to compare the characteristics of up to 4 ITs – very useful to observe their correlation- there is little point in holding a group of ITs which have the same share holdings.

    However you can´t avoid the necessity of delving deeper into the individual financial performance and characteristics of each trust. The information is available through annual reports with most trusts making these available on their web sites often giving access to published annual reports going back over 10 years. What I look for is their dividend performance post 2008 crash – did they sustain or increase their payouts? Are the dividends paid from capital or income or a combination of both? Trusts sustaining dividends from capital are more likely to cut payouts during market downturns. If the 5 year dividend growth shown on AIC is healthy then what was the dividend level 5 years previously – 1 % yield to 4% over 5 years is a pretty good growth rate but I am looking to invest in ITs that have had a consistently good yield and inflation+ growth. I am not particularly interested in historic % yields as this is market driven through share price – it is the actual £ payout that is important. I look at the actual dividend payouts going back to before the 2008 crash – most annual reports have the 10 year dividend history so it´s easy to get up to a 20 year history looking at the most recent annual reports and the report from 10 years back. This allows me to see the reason for any dramatic increases or falls in the dividend – special dividends for instance.

    The great advantage of ITs is that this information is readily available – this is not usually the case with OEICs or ETF. There is a good example of an Investment Trust income portfolio with 12 year performance on https://ace-your-retirement.blogspot.com/p/i-operate-number-of-different.html

  • 22 Getting Minted August 15, 2019, 10:38 pm

    I think the debt loans and bonds sector is also of interest, e.g. NCYF, HDIV, CMHY, IPE with yields of 7.6%, 4.7%, 5.3%, 6.7%, and HHI (yield 5.9%) in the UK equity and bond sector (yields from AIC on 14/08/19). Was there a decision to leave out bond trusts?
    I hold income trusts from the UK, international, and property sectors (as in your table) and from the bond sector but have steered clear of the specialists so far.

  • 23 Whettam August 16, 2019, 5:58 pm

    After my comment about Scottish American (SCAM) on the main post, just noticed that it is listed but as UK centric income Trust. Its currently only about 10% UK, so in my portfolio I very much regard it as global.

  • 24 The Rhino September 3, 2019, 1:58 pm

    Could this table be hooked up such that the data updates automatically?

  • 25 The Rhino September 3, 2019, 3:32 pm

    There seems to be a bit of cognitive dissonance on the IT front. On the one hand there’s the observation that you need to get your hands dirty and do some research and read a few reports to figure out what to buy, but on the other there’s the point being made they’re ideal for the elderly, infirm and those generally losing all their faculties. It can’t be both can it?

    Or is the thinking on the second point that someone else is doing the choosing for you, i.e. an IFA is picking you a basket of ITs?

    I’m working my way through the back catalogue of MV IT articles. The articles are good, but they’re not quite getting me to the point where I can say I’m going to buy that one (or six, or twelve say). I know I want to buy some, but just a little of the ‘trigger-pulling’ point. Maybe there’s a few good books out there that could help?

  • 26 The Investor September 3, 2019, 7:33 pm

    @Rhino — I think it can be both, assuming that for old age / retirement you’re talking about equity income investment trusts (bought at a point before someone is losing all their faculties.)

    To dovetail with the second half of your statement, for me investment trusts are active investing. If you’re doing this you’re either trying to beat the market, or you’re trying to get something different from the security type versus say passive ETFs.

    I don’t think you can just read Monevator’s investment trust articles and expect to buy a dozen investment trusts and beat the market. (You might but I don’t think you can ‘expect’ to). You’re saying you have alpha, or you’ve found a way to express alpha very easily. I suspect some people can indeed collect alpha buy investing in (/trading) investment trusts, and on a good day I might fancy myself to be one of them (note: jury out at present due to ongoing Brexit impact on my investing in 2019! 🙁 ) but for my part I’ve studied the asset class for more than 15 years, read at least three books, probably over 100 investment trust annual reports and a few hundred fact sheets, plus numerous interviews with managers etc. Most people aren’t going to do that. Most who do will probably fail to find alpha, possibly including me. If you get it from Monevator articles you’re either a brilliant investment trust investor or you were lucky one way or another.

    The other reason then is to buy them to get something different, not in the expectation of alpha. For me this is what Greybeard’s championing of equity income trusts for retirement income comes in and is a very valid contribution to the site. I’m not aware he’s ever written that such portfolios can be *expected* to beat the market on a total return basis. (They might, they might not, I think they’ve an okay chance from today but that’s for another article). What he does expect is a smoother rising income over time sufficient to outstrip inflation, from a basket, over the remaining lifetime of a retiree. Certainly not a guarantee but he and I believe a reasonable expectation.

    It’s basically handing over management of the income flow to a fund manager, for higher fees and the chance of underperformance. Perhaps the same could be achieved with a basket of passive income tilted funds and a big cash buffer, perhaps the jury is still out on that.

    I think a competent clever Monevator type can do *some* research and create a reasonable portfolio of such equity income investment trusts that they can hope to buy and hold providing they don’t get too fancy. (i.e. They mostly stick to long-term blue chip investing ‘dividend hero’ types, not the sexier stuff.)

    If you’re trying to do something different to either of the above, your mileage may vary. It’s important for you to know what you’re trying to achieve. 🙂

  • 27 The Rhino September 4, 2019, 8:47 am

    @TI – thanks for the detailed response!

    What I’m really trying to do here is diversify. I’ve already got the classic MV type portfolio setup a la Hale, Krojer, You, TA et al on the accumulation side.

    Now what I’m thinking of doing is running an income producing portfolio in parallel. Sort of accumulating and decumulating at the same time.

    I’m trying to achieve a few things:

    diversification of ethos – run a ‘total-return’ and ‘income’ portfolio side by side so I can test the psychology of not selling down capital just spending dividends and see how that sits with me.

    diversification of products – I’m going to buy ETFs and ITs rather than funds

    diversification of brokers – ties in with the ETFs and ITs bit, I’m planning to revive my dormant HL account for this

    diversification of providers – get less vanguard heavy

    So I’ve got a pot to deploy for this purpose and my thinking is I’ll split it 50:50 between ITs and ETFs as these are the two approaches GB outlines for decumulating income.

    So my job is to buy a basket of ITs and a basket of ETFs. The IT side you could call passively active, the ETF side just passive.

    I can then watch it all for a few years, see what I think and then rejig as appropriate down the line..

    So I’m not trying to beat any market or anything. I’m just starting the process of getting my portfolio to throw of some income and getting some much needed diversification in there at the same time.

    But my issue remains – I’ve not reached a level of confidence on the IT side to actually buy. I think the ETF side will be easier as it is more similar to what I’ve done already on the accumulation side, prob just swapping to inc. ETFs rather than acc. funds but with a bit more thought on the yields.

    At this moment, if I bought an IT it would be based on not much more than a few positive internet comments, possibly a discount, a TER of <0.8 say and a feeling it had been round long enough that I could buy it and then forget about it. That doesn't seem super sensible to me quite yet.

    Which brings me to another question. If you have to have a good look at an IT to assess whether to buy it, does that also imply you have to then monitor it to see whether you have to sell. In other words, I'm still confused as to whether the long term buy and hold strategy for ITs is compatible with the idea you have to actively pay attention and sell if need be. Ultimately I'm after a portfolio that largely runs itself so if a sub-section of ITs takes a lot of fretting over its not really going to work. But *if* this idea of ITs for elderly income is sound, then my worry must be unfounded right?

  • 28 Paul February 28, 2020, 11:53 pm

    Very interesting piece and list
    Is there anything similar for growth focus with limited / low divs

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